Individual physicians must pursue the future of their practice with intensity and thoughtfulness. The good news is that the extra effort can have a direct effect on the financial rewards of succession planning. This process requires realistic evaluation of your financial needs and the emotional effect of passing the practice on to a new physician versus simply closing it.
Typically, individual physicians have three basic options for succession planning:
1. Slow down gradually and close the practice when the financial rewards are no longer worth the effort, selling the equipment for a nominal value.
2. Maintain a full-time schedule until the day of retirement and then sell the practice to a single recruited successor or a potential buyer.
3. Recruit a successor early, build the practice until it can support two physicians, and then sell the remaining half of this new multiphysician practice to a third physician.
The timetable for each of these three basic options depends on how long it takes to recruit a successor (or find a buyer for the practice), if one is needed.
The first option, which doesn’t require a successor physician, is the quickest. Winding down and closing the practice will result in a decline in compensation and, ultimately, a nominal sale price. If you happen to find an eager buyer while you are winding down the practice, you can simply shift to a variation of the second strategy, selling the practice to a single successor upon retirement.
Selling the practice to one physician produces a fair market value practice purchase. There is reduced compensation during the transition period because your one physician practice must support the income of two physicians.
The timetable for the second option varies based on whether you are recruiting your successor from a resident or fellowship program or recruiting a physician that is already in practice. The third option requires not only recruitment of two physicians, but also enough time between those recruitments to successfully build a practice to accommodate additional physicians, so it takes twice as long as the second option.
If you decide to pursue an option that involves selling to a third-party, you should obtain a practice valuation from an experienced financial/practice valuation advisor as a first step. This gives you a realistic expectation and a basis for negotiations that can’t be dismissed as simply a personal opinion of your own practice’s value.
Finally, use other area resources. Discuss your plans with the hospital or hospitals at which you practice, for example. Hospitals in underserved areas need to maintain physicians. Hospitals in competitive markets need to maintain or build their physician and patient bases.